Brazil

Higher prices and successful bids show mature industry

BRAZIL: Brazil's latest energy auction in December has shown that wind projects can compete successfully with hydropower.

Brazil's latest energy auction saw average wind prices up 5.5% from the record lows of the previous auction. Experts have taken this as a sign of a maturing market.

This auction was significant as it was the first time the government allowed wind projects to enter a tender - known as the A-5 - which was previously designed for bigger projects that need longer construction periods compared with the 18 month-average for wind farms. Wind projects competed with hydroelectric and even large-scale thermoelectric projects.

Prices in the auction ranged from BRL 91/MWh ($51/MWh) for the only hydro project to BRL 107/MWh. The average wind-power price was BRL 105/MWh, up 5.5% from the BRL 99.58/MWh in the previous auction. Despite the slight increase, experts saw this as price stability, showing the market is maturing despite new equipment suppliers such as Alstom, Gamesa and Vestas coming in hungry for contracts.

"It's clear now that prices will not fall too much from now on, which makes things more predictable for developers and equipment makers investing in the country," said Eduardo Alfonso, a legal consultant specialised in renewables at law firm FHCunha.

The auction also saw large players such as Brazil's federal power company, Eletrobras, and Portugal's EDP Renovaveis arrive on the scene.

"Brazil's auction model, through which power is sold for the lowest price, is a powerful energy-planning tool," said Nivalde de Castro, who heads the electrical energy study group at the Federal University of Rio de Janeiro.

A total of 1GW of power from 39 wind-power projects were awarded tenders, to be delivered by 2016 on 20-year contracts. No gas or other fossil-fuel projects entered the auction, and only one of the five medium and small hydroelectric bids was successful. None of the 13 biomass projects registered managed to win any contracts.

Power companies' appetite for wind power in Brazil comes from the country's still enormous untapped potential of more than 100GW, falling equipment prices and the government's focus on renewable sources in its long-term planning, according to de Castro.

"The stable rules allow players to know that, every year, the government will buy 3.2-3.5GW from new projects, focused on renewables, therefore wind projects can compete as companies and suppliers gain scale," he said.

Wind and hydro

In the auction, Eletrobras partnered with Spain's Gestamp and France's Voltalia, winning contracts for 14 projects with a total capacity of 315MW. This allowed the two foreign companies to cement their foothold in Brazil, and signalled that large companies traditionally focused on hydro power are now looking at wind to complement hydrological variations. Wind is strongest during the dry season and weakest in the wet, according to studies by the Brazilian wind power association, Abeeolica.

EDP Renovaveis won projects at a Brazilian auction for the first time. EDP, through its local units, has 83MW in three operational wind farms in southern Brazil. After the auction, in which it bid the lowest price of BRL 97/MWh, the company will expand to the north-east of the country, kick-starting a more aggressive phase.

"We want to be one the biggest players in wind power in the country, and what we offered was not our lowest price," said Renato Volponi, EDP's general director for Brazil. "All the conditions were right: rates of return are over the market average of 8-10%, a capacity factor of 47% and good connections to the grid".

EDP Renovaveis has stayed out of auctions as it has been preparing greenfield projects and waiting for stable market conditions. For the A-5 auction, the company acquired projects from other companies that were already licensed and had undergone the two-year preliminary wind measurements. The company is preparing to participate in this year's other auctions, tapping its 1.5GW greenfield project portfolio.

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